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(FranchisePick.Com) In its recent Open Letter to UPS Store Owners, the UPS/MBE franchise owner group
called the Brown Board Owner’s Association detailed 12 serious issues and concerns that it is trying to get its franchisor, shipping giant UPS, to address. (The BBOA is not affiliated with another franchisee group, the BSA, which is trying to force change via a class action lawsuit against UPS).
According to the letter, profitability is a serious challenge for new UPS Store franchise owners:
Overall Store Profitability is a Major Concern.
The majority of UPS Stores do not start breaking even for 36 months with many requiring 48 months or more. That does not mean that the owner(s) have made their money back in 36 months, it means it takes the average store 3 years before the owners stop putting more money into the store. Unfortunately neither MBE nor the Area Franchisee tells this to the prospective buyer. Generally, this means that opening a new store is a bad financial decision. The average store is resold when the original owner runs out of the cash needed to continue operations, then the second or third owner has a chance to start making an income. It is almost always better to buy an existing store!! Some stores start to produce a $35,000/yr income for the owner at about $365,000 in annual gross sales, but the medium store gross sales at present appears to be about $280,000 (available numbers say about 60% of all US stores do not break even).
Taking an example from the PACE manual, it states that a store that does $550,000 STR with a 60% margin should gross about $110,000 in profit. To simplify the math, they take $550,000 and multiply by a 60% margin. Fixed and Variable expenses are estimated to be $220,000. However, if you multiply by 52.5% (the average gross margin according to Financial Planner), gross profit is reduced by $41,500 (to $68,500). This is a ridiculously small return on investment for a store that is in the top 5 to 10 percent of the network.
What is “Churning” in Franchising?
The letter describes a major concern in franchising, an issue called churning, described here: “The average store is resold when the original owner runs out of the cash needed to continue operations, then the second or third owner has a chance to start making an income.” While the original store owner may have lost most or all of his initial investment, the transaction only shows up in the disclosure documents issued to future franchise prospects as a “transfer.” In theory, a franchise company could have widespread failures, but since the stores weren’t actually closed the franchisor can boast they never had a store close. Franchisors can pass off the “transfers” as owners selling their businesses for personal reasons.
Related story on Blue Mau Mau: UPS Store Independent Association Sends Invitation to Franchisee Council
HAVE AN OPINION? LEAVE A COMMENT.
It’s quite amusing reading a lot of these responses.
Sadly, small business ownership is NOT for everyone. I paid 40k for a failing store and resold it within ONE year for 250k. Shockingly, the store wasn’t FAILING. The OWNER was failing. He was cooking his books and squandering his resources, screwing over customers until it finally caught up with him. Point being is, I paid 40k for a store with 550k+ annual sales. And yes, those returns ARE around the 20-25% range after CoGS and Expenses. If you run a GOOD store, watch your margins, your costs, payroll, rent, etc… you could easily exceed 25%. If you think even 20% is a joke? Try owning a Subway. They post LOWER margins of around 10% profit for a location that has the SAME yearly sales numbers as a UPS Store. Difference? Subway’s opened 7 days a WEEK! I wouldn’t pay someone to lower me into the ground that fast.
It wasn’t easy with MY first purchase either. I learned a lot about franchising, and this article and folks were true to a DEGREE that there are things they ‘omit’ until the last minute. But if you are a good negotiator, some of the fees can be taken off. I didn’t make the same mistakes my second go around, and now I’m sitting pretty with a huge lump of cash. Now it’s tempting to go out and buy away from more failling OWNERS, just to rebuild and sell. Guess what? I’m “churning” stores myself as an OWNER.
Bottom line is: People are idiots. Don’t EXPECT to buy a business and sit your fat plump butt behind a counter and have the customers just come to you. GET OUT and market. Network. BUILD your business. Work ON your business, not IN your business. Bitter owners cry about UPS stealing their business? Hogwash. Some? Yes. But that’s BUSINESS. Fight back. Steal your 6 digit account numbers back. UTILIZE your resources. Don’t waste your time by buying into those stupid goin’ postals, or postnets, or pakmails. Their business models SUCK. What’s more? You don’t have a BRAND to stand behind.
Don’t fool yourself into thinking that the shield out front of your store doesn’t matter. IT DOES! If you aren’t using your brand to sell product, you’re doing it wrong. Also, don’t cry that MBE Home Office buys/resells stores, ups steals customers, blah blah blah… It’s BUSINESS. Diversify your products. Focus on printing and other HIGH profit areas. My first store’s sales mix is 50% shipping, 40% PRINTING. My printing margins are 85-90% PROFIT. Diversify. Are you going to cry if your broker says you just lost 200k in investments because of a crap economy? Probably. Why? oops you put all your eggs in one basket.
“All negativity is an illusion created by the limited mind to protect and defend itself.”
To put it as respectful as I can.. You are a liar!
To put it as respectful as I can.. You are a liar!
I bought my store in 2008 in Ontario. I paid $130K+ $50K approx in transfer fees (they failed to mention the owners were going bankrupt… the 3rd owners were going bankrupt). The numbers were fudged. I offered $100K… area manager said that was an insult. 18 months later I sold for $30K – enough to pay the current outstanding bills and walked away with a $260K loss. I’m sick to my stomache. I am looking for a class action lawyer to start a class action suit in canada. This franchise needs to be stopped … too many people are losing everything they worked hard for to this franchise. It’s a disgrace. I dont know how they sleep at night. The best part is when I sold – I paid my area dude CASH for his fee… I even have his signature in writing! CRA where are you!!!
Just to let everyone know, I purchased a UPS store this year from a previous owner who went bankrupt and am divided by the on whether or not it is a good decision. I got a great deal for the store and my costs are low, but I would be absolutely dismayed if I were paying financing on 150K to 250K. As it is, I am barely making minimum wage and work 60 hours a week. Before this I was making substantially more in another job and bought the store strictly using it as an investment to turn around and sell in a year.
I am noticing that UPS Corporate has there hands into my bank account constantly and I believe they make more money from “flipping” failing stores for the obligatory franchise fees, than from actual shipping through the stores. UPS is most assuredly not on the side of the store owner.. It is becoming more and more of a drop-off location than a shipping venue because not only are stores providing their customers with more return service labels but UPS Main is under-cutting the stores by allowing people to print their own labels for cheaper than we can ship.
Previous posts suggested that it is ok if you have more than 1 store (or 5 as one person said), but honestly, if you are putting in the work and financial capital for 5 stores and making 100k, that is not nearly enough. That averages 20k per store which is not a live-able wage, especially after investing your own money.
UPS will make 30k franchise fee everytime a store fails and is resold.. Unless you want to invest anywhere from 50k to 200k in a business that will pay you 5 to 10 dollars an hour for the first year, you should look else where. The only upside is the fact that the US Postal Service will be out of business in another 2 years, but as I said before; with the increase in drop-offs, it won’t matter anyway.
PS. For all of you who believe that you can turn it around and it will be different, trust me, it won’t. No one on here is an idiot. It is difficult in the extreme to turn around a business when the parent company is actively trying to under-cut you and actually profits from each locations failure.
Good day…
Oh, and I bought my frist store in 2000 and my second in 2004. I was the 17th store in our area and now there are 42 stores. Very few stores have changed hands and only one has gone out of business due to poor location choice that the owner demanded.
I own two The UPS Stores and am very happy with both. Anyone who sells a store to the Area Franchiseefor $1 is not very bright in my opinion. Hire a company to sell the business for you. You may not get a great price but at least you could get 20-50 thousand easy.
I too hear conflicting stories. The comments posted hear are mostly negative. However, the store owners I’ve called have positive remarks. Have things changed drastically to make buying a The UPS Store a better bet in 2010?
Hi Guys,
I was interested in buying a UPS franchise but after reading all the comments/experiences above, I am really concerned now…
Try Goin’ Postal
No business model is perfect. How about over 4000 locations running for past 20 plus years.Go to a best university of the world , not all students succeed. Overall success is the model to be looked at.A certian percentage failure rate is part of any adventure. All never succeed.
hello, i am thinking about buying A NEW UPS STORE FRANCHISE in GTA TORONTO CANADA area, i read all the review above about the franchise store in USA, but can anyone tell me the UPS STORE business in canada as a franchisee,your feedback will save me as i deposited some money already, i need to know if it is profitable or not, and as a new UPS store franchisee what is the support level of the main office, i will really appriciate your feedback, thanks
Any thing different between owning UPS in USA and Canada. I am looking to get one in GTA.
Hi guys,
I’m looking to open a new store in the US, Orlando FL. all by myself, but not a franchise. Instead I’m looking become a authorized shipper for UPS, FeDex and DHL.
What can you tell me about this. Is a good move or what.
I’ll apreciate your oppinion.
I am looking to franchsie a store. I need information about goodwill and what I should ask?
Hi guys. Thanks for all the information about UPS Stores. I was seriously considering buying a store in Chicago very soon. I was about to refinance my house to get some liquid cash. You guys have saved me from losing lots of money and making a bad business decision. I guess it’s time to go back and work on my resume and skills set. Thanks again :-).
Boy these comments look discouraging! I have been a franchisee for 11 years (MBE and The UPS Store). I have opened or transferred 6 stores, I now have 5 (sold one at a profit). It has been a journey of many challenges, but I do make money. I mentor new franchisees for my Area office and have seen all kinds of operators. The ones who do well follow the franchise guidelines and take advantage of the many services and support from the Area and Corporate offices. The ones who do not and spend little time working ON their business don’t do well. The fact is a franchisee is in business for themselves and must take the responsibility to run an efficient RETAIL business. Retail is tough and a nickels and dimes business (ie: you have to watch every one of them). Just because UPS is on the store front doesn’t guarantee success. I spend much of my time marketing my stores, looking for ways to improve each profit center, training my staff and using our financial tools (financial planner, Quickbooks, etc) to manage the levers necessary to keep the business on track. This past year has been very difficult and I have had to make some tough decisions regarding staff and expenses that I have not experienced before in my 11 years in the business. I can tell you it is no different than other retail formats (look at the empty spaces in retail centers). While it is challenging, I am enjoying the freedom of owning my own business after 25 years on the corporate W-2! Will I be able to sell my stores for a profit? I think so, and at age 65 I have started an exit plan which should return a reasonable return on my investment. Other than the fist few years when I invested more than I expected, I have reached a six figure income and could sell or retire while keeping the business with experienced managers. I like this franchise and encourage others who truely want to be in business for themselves, but not only by themselves, to realistically decide how hard you want to work in the retail industry and give it a try. Hank
I’m thinking of buying a UPS Franchise Store. What are the major questions I should ask the Area Manager
I own one, followed the system and then some. We close in 60 days and I am out 200k. Which do you believe I believe?
I’m buying an existing store in Orlando. All these is making me rethink about it. Now I do not know what to do.
Well this is and eye opener. I was looking at a store in California will stay away from UPS now!!! Thank you very much for all the insight
Richard
I am so glad I found this site. We have been considering buying a Franchise in Missouri for the last year. I think what’s deceiving is when a single owner has multiple locations and you get the impression that this is somehow a lucrative investment. Does anyone have performance stats on the stores in St. Louis, Missouri? I know the stores in Ballwin are doing very poorly!
1003 days ago
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I live in BC Canada and was looking into buying a UPS store. i notice at least 4 other UPS stores for sale and started to do some internet research. That is how I ended up here. After reading this post , it is quite obvious to me that UPS does not look after its people. I am not going to buy the UPS store. Thank you all for your input. You have likely saved me from a big mistake. Sorry about your losses and I wish you all the luck in the future.